Today, Franklin Roosevelt’s heirs — big-government liberals eager to right the wrongs of the world by expanding the size of the government — argue against small-government conservatives. The supposedly more progressive side wants the stimulus package to take the form of government spending, while their opponents want bigger tax cuts for businesses and more prosperous Americans.

The missing movement, small-government egalitarianism, would favor tax cuts, but only if they were aimed at ordinary Americans.

Libertarian progressivism distrusts big increases in government spending because that spending is likely to favor the privileged. Was the Interstate Highway System such a boon for the urban poor? Has rebuilding New Orleans done much for the displaced and disadvantaged of that city? Small-government egalitarianism suggests that direct transfers of federal money to the less fortunate offer a surer path toward a fairer America.

Political divisions have not always pitted big-government egalitarians against small-government conservatives.

At the start of the 19th century, the fans of big government, like Alexander Hamilton and Henry Clay, saw public projects as a means of strengthening the nation rather than reducing inequities. Their policies, like tariffs and canals, often enriched the prosperous more than the poor. Conversely, the post-Era of Good Feelings Democratic Party was built around Andrew Jackson’s small-government egalitarianism. Jackson’s fight against the prosperous Philadelphian Nicholas Biddle and the Second Bank of the United States epitomized his desire to reduce privilege by reducing the size of government.

In the 20th century, President Woodrow Wilson campaigned on a “New Freedom,” opposing Teddy Roosevelt’s big-government Progressivism. While Roosevelt wanted the government to manage monopolies, Wilson wanted trust-busting and less protectionism. Wilson perceptively noted the dangers of too much government: “If the government is to tell big business men how to run their business, then don’t you see that big business men have to get closer to the government even than they are now?”

Current American political discourse labels people as either anti-government or pro-equality, but wanting to help the poor should not require the abandonment of sensible skepticism about expanding the size of the state. Many of my favorite causes, like fighting land use regulations that make it hard to build affordable housing, aid the poor by reducing the size of government. In the wake of Hurricane Katrina, I also argued that it would be far better to give generous checks to the poor hurt by the storm than to spend billions rebuilding the city, because those rebuilding efforts would inevitably help connected contractors more than ordinary people.

Today, the New Deal’s heirs are vociferously arguing that more of the stimulus package needs to be spent on public works rather than tax cuts. The big-government skeptics point out that the government can’t spend hundreds of billions of dollars on infrastructure projects both wisely and quickly. Good infrastructure spending doesn’t happen on a dime, and applying a “use-it-or-lose-it” rule to speed up spending will lead to a lot of waste. The country could certainly invest more, in both human and physical capital, but that spending should follow the rule that benefits must exceed costs. Good investments need plenty of time to plan and implement, which pretty much rules them out as good fiscal stimulus. Moreover, since many of these projects will disproportionately benefit the prosperous, many of them can be financed with user charges.

Yet skepticism about vast public works does not necessarily lead towards Alf Landon-like antipathy towards stimulus, or towards tax cuts for big businesses and the wealthy. A quite plausible alternative, which is partially present in the president-elect’s proposal, is for the fiscal stimulus to primarily take the form of payroll tax cuts for poor and middle-income Americans. Those are, after all, the people who are most likely to spend the money quickly.

Targeted tax aid for poorer Americans would be far more egalitarian than most kinds of infrastructure spending, like broadband technology. Sensible infrastructure projects wouldn’t disproportionately employ the least-skilled Americans. Forgoing the payroll tax for households earning less than $75,000 a year is surer progressivism than bridge-building.

Economics has little say about how egalitarian society should be. That is a question for moral philosophers and the democratic process. However, economics does tell us to choose efficient means of redistribution, and cash transfers almost always involve less waste than the alternatives. Reducing the payroll tax not only avoids the problems inherent in trying to spend infrastructure money quickly, but it can also directly target aid to the poor, who need help more and will spend the cash more quickly. Now that’s the kind of small-government egalitarianism that would have appealed to Andrew Jackson.

The problem is that “big government” means different things to liberals and conservatives.

To conservatives any social programs are causes of big government. The fact that the two largest (Social Security and Medicare/Medicaid) are really only government-administered programs is forgotten. Both have their own, dedicated, sources of revenue and how they spend the money is laid out explicitly in the enabling legislation. The government only performs a clerical function.

In fact, until LBJ decided to hide the cost of the Vietnam war, these types of programs were not part of the government budget at all.

If you subtract these, then militarism accounts for 54% of the discretionary federal budget. This is big. The amount spent exceeds that of all the other industrialized countries put together.

Some how this elephant in the room never gets noticed when discussing big government. Even Obama has promised to increase military spending, so militarism is a bipartisan effort.

Discussions about big government are really caused by tax resentment. Notice that those in Scandinavia don’t suffer from tax resentment even though they pay higher rates than we do. They see what they get for their money – health care, free education, child care, old age support, maternal (and parental) leave, etc.

In the US half of the taxes collected are wasted on weapons that are either left to rust in the desert or used to blow things up. If half your taxes yield no visible benefits why wouldn’t you feel resentful.

Now people don’t think about how pervasive (and expensive) militarism is so their big government complaints focus on programs to help the weakest among us. This is mean spirited and uncharitable and those who foster these types of class resentments should be publicly shamed.

Of course we live in an age where no one admits to mistakes or apologizes for them so that’s not likely to happen.

It seems ironic, that American backed IMF, when lending money to S. American, Korea, Pacific Rim countries, forced these counries to raise rates, follow restricitve monetary and government spending policy, but when the US goes belly-up and borrows trillions from foreign central banks, there is NO such restricitons, but in fact the US does the complete opposite. Drops rates to Zero, and spends as if there is no tomorrow. Then repays their debts with printed money, with NO concern for their currency. NO small policy here, just say one thing and do the opposite. Many of these countries have sworn NEVER to take an IMF loan again, and for good reason.

I like this article a lot! Clear distinction of economics from politics, yet well aware of the intricacies between the two.

There’s also a need to look into the how. A generic equal percentage tax cut across the tax brackets could also benefit the rich more than the poor. A saving of 1% on a million dollar income is certainly higher than that on a 50k income. So such a “stimulus” would just put more money into the rich than poor. Or, the poor subsidizes the rich.

Furthermore, someone pointed out earlier in another Economix posting that those who are among the increasing pool of jobless (reaching 10% of working population some might expect) and who would be expected to have a high propensity of spending would also not enjoy the benefits of tax cuts, since they have lost their income. This important pool of people, too, would not benefit from a generic tax cut.

It might be necessary to implement tax cut with some sort of “progressive tax cut” scheme, where the lower the income, the higher the cut. The scale might be such that the richest bracket experiences no cut, and then progressively more towards the lower brackets, where the lowest brackets could even pay nothing. The scheme might also introduce interest-free deferred personal taxes for up to 10 years, allowing individuals to pay some amounts of taxes due later when economy is expected to be better.

While this might still not help the some 10% of jobless, the other 90% of working population would, as the author argues, immediately benefit greatly from this as the progressive scheme keeps much more tax dollars with them. The deferred payment scheme basically means the government is directly financing tax payable for the individuals, allaying concerns about additional cash flow problems piled onto individuals’ finances.

I agree with the author about the futility of high-tech programs. As a general statement, it would take lots of preparation not just in the main infrastructure, but also the peripheral support structures, components, knowledge building, servicing and so on to make the most out of the investment. This isn’t impossible, but would take time, which is a luxury in view of the current situation.

Take broadband for example, imagine now several billions of dollars of paying networking equipment and hardware server and software services companies to set up the backbone operations, do people have the money to buy sufficiently powerful PCs or notebooks to take advantage of high-speed videos and vast image downloads that won’t run unless the computer is the latest? Do people have the money and mood to subscribe to broadband connection when they’re losing their property? Would the economy start get a good jump-start with greater broadband usage?

Green programs are also large investments that need time to do a good job. They are important and probably strategic projects whose returns would be seen in the longer run. In the short run, however, say after billions of dollars are spent on setting wind/solar farms and research and benefiting, as the author suggests, large companies that manufacturers, would the economy get a good jump-start?

While the visions and planning considerations of the incoming team are lofty and thoughtful, mixing the objectives of wanting to achieve near-term economic fix and the desire to benefit from long-term strategic projects could likely give the team only an averaged grade in time to come. It might be better for them to consider separating these clearly distinct programs into phases, so that the more urgent ones get fixed first.

what Republicans prefer, small government, tax cut, laissez faire, etc. actually make the middle class less and less likely to survive.

a cross-board income tax cut would indeed favor the high income class, not the middle class nor low income ones. so is true for the flat rate tax.

on the other hand, why doesn’t any proponent of small government propose any plan to make the fiscal condition more viable? for the US federal government , 4 billion dollar must be spent every single hour, yet the US borrows more money than its revenue part from individual payroll tax.

let’s just put the egalitarianism aside, pay attention to the viability of the United States of … well… Bankruptcy.

Plus, if we cut the payroll tax, then Social Security will be really underfunded and we can come back in five years and gut the system.

There are many areas of our economy where cash transfers are simply not effective or efficient because the market does not work. Back before the Austrians took over the economics profession we used to call these “public goods”.

Market education is a joke because you cannot borrow aainst your future earnings and your ability to judge a good education is limited by, guess what, your own ignorance.

Meanwhile the free market has had ample opportunities in the last 30 years to organize and rennovate our transportation infrastructure and, guess what, it has not happened.

May I suggest that all of this sounded fresh and new in 1976 when you folks were busy purging dissenters form the economics departments of the nation. You have had your decades to experiment, get out of the way and let someone else try.

There is a lot going on in Professor Glaeser’s post — stimulus, aid to Katrina victims, etc. However, I think before we small-government types get carried away with showing how much we care about the poor in our limited collective capacity, we should take note of Cicero’s statement:

“There are, though, many especially those greedy for renown and glory, who steal from one group the very money they lavish upon another.
They think that they will appear beneficent towards their friends if they enrich them by any method whatsoever. But that is so far from
being a duty that in fact nothing could be more opposed to duty. We should therefore see that the liberality we exercise in assisting our
friends does not harm anyone. Consequently, the transference of money by Lucius Sulla and Gaius Caesar from its lawful owners to others
ought not to be seen as liberal: nothing is liberal if it is not also just.” On DUTIES

That is an interesting consequence brought up about an increase in government actually helping the prosperous and their lobbyist and not the poor. But by extension it would also help out the workers, would it not? And the unemployed surely would be helped. I believe the reason why government and business interests have prevailed for so long over the poor is because of government was not doing their duty to regulate business. It did not have to be that way. Government should not be corporations buddy. They should be their parent.

The issue I have with Libertarian Progressivism as it is argued for here is that tax cuts merely perpetuate the status quo of consumer debt spending. That may eventually help the economy but only to what is whas before. The economy is sick. Why did it it get sick? Giving it Tylenol to go on its merry way should not be the order of the day. We have an opportunity here to fix some “flaws” as Greenspan admitted. Tax cuts no matter how well intentioned for the poor just seems to prolong the agony. I would also read a recent post here regarding lotto winners filing for bankruptcy. Giving people large sums of money does have some negative consequences if they not financially aware.

The money that the FED prints to bailout the huge companies is being printed out to thin air. This money that gets into the system causes inflation, add that to the debt we owe China, and the cost of the war and you have the 2nd Great Depression of the U.S.

The professor ignores the fact that infrastructure is necessary not only for economic activity, but for access to affordable power for everyone, including the middle class and the poor. That is a proper role of government, and NOTHING has happened worth mentioning on that front since the right wing took over in 1980, so there are unmet needs all over the country.

One example: as the age of cheap fossil fuels winds down, we need a national electric grid to distribute the energy that’s relatively easily attainable from sun and wind. A national grid will benefit everyone, not just the contractors who build it.

And i agree with the poster above: anyone who really wants something approaching small government egalitarianism needs to come out for cutting the military budget in half.

How come Prof. Glaeser doesn’t talk about ‘big government” programs that have helped the poor. Aren’t systems that ensure clean water, clean air, and sewage systems beneficial to the poor? How about the government program that bought electricity to rural areas? And how about Medicare and Social Security?

Does Prof. Glaeser think that tax cuts are truly sufficient to help those at the bottom, or does he favor tax credits also?
Of course to people like Dick Armey, tax credits are the purest form of “transfer of wealth”, something he detests with all his soul.

On the one hand, you have people decrying programs which transfer wealth as “socialism”. On the other, you have people denouncing projects that don’t focus exclusively on helping the poor as being insufficiently egalitarian.

I have a problem with a theory that objects to government investment in principle. Small government supporters have opposed investments in infrastructure whether they have had extensive planning or not. Does Prof. Glaeser really believe we shouldn’t have an interstate highway system? Or national parks? Or a Center for Disease Control? Isn’t it in our interest to have a better energy grid?

Wouldn’t New Orleans have been even better off if we had invested to begin with in better flood protection? Holland does it. Why couldn’t we?

It’s worth pointing out for those who really mistrust government that wide disbursement makes it much more difficult for individuals to “capture” government than narrow disbursement (military, financial bailout, etc.)

Great, thought-provoking post. It’s intersting that some folks have recognized that government spending doesn’t automatically lead to benefits for the citizenry.

I’ve long been amazed that people can distrust the government to the point of believing that we created AIDS, or planned 9/11 ourselves, but then want to give that same government more influence in their daily lives.

Most government spending is completely disconnected from the communities that politicians claim to care about. The vast amounts of overhead spent by government agencies goes to rich consultants and contractors, soaking up all of the cash before it reads the needy.

Consider some of the stimulus plans: broadband – helps the rich. Rural water – good idea, but will we pay for the water bills of the rural poor? No. So we’re laying pipes that will go unused. Science funding- pretty sure that money will go more to General Dynamics, and less to Compton. Road-building – great benefit, if you’ve got a car and can afford the gas.

TARP is a classic example of government’s inability to direct money appropriately. We basically just spent $350 billion giving banks money to buy other banks. Congress complains about oversight, then confirms one of the overseers to a new promotion.

Anybody who thinks Austrians have taken over economics needs to be laughed off this board. A lot of people in the mainstream wouldn’t even say they’re practicing economics at all. Both the Austrians and their opponents will tell you that they’re as marginal as other “heterodox” schools. The average economist would just say there’s good reason for that (their rejection of Popperian falsifiability in favor of “apodictic certainty” clinches it in my book) while the Austrians claim the profession has group-think and refuses to seriously consider their ideas. Wonks Anonymous may be confusing them with the Chicago/UCLA school or Public Choice, which are considered more respectable but still a minority among academic economists (the modal example of which is a moderate Democrat).

Mr. Feinman, when excess payroll taxes come into the SSA, the cash is turned over to the Treasury which, in turn, issues interest-bearing bonds to the SSA. The Treasury then spends the cash on welfare, roads, weapons. So really the government isn’t doing anything clerical. Unless you call being a banker, clerical.

It might be necessary to implement tax cut with some sort of “progressive tax cut” scheme, where the lower the income, the higher the cut. – Mr. Chin

At what point do we want the top ten percent to pay all the income taxes? Currently its a 70%. If everyone doesn’t have some skin in the game, nobody gives a damn what we make others do. I thought that we are Americans, equal all. Our skin in the game should be equal as well. Flat tax or Fair tax. I prefer the Fair tax, rich people have more to spend so they will pay more taxes.

Road-building – great benefit, if you’ve got a car and can afford the gas. Mattin VA

Poor people benefit by the cheaper delivery of goods. You don’t need a car to benefit.

I appreciate most of the commentary here – void of nasty namecalling and the usual schoolyard rhetoric. But what I find troubling is the assumption that flat-rate, across-the-board tax cuts “give” more money to the wealthy, as opposed to the middle and poorer classes. That money isn’t the government’s money to “give” – it belongs to the earners to begin with; it is taken and spent by the government, but it originally lies in possession of its earners. Therefore, aren’t those who earn more entitled to get back more when tax cuts are on the table? I am certainly not a wealthy American trying to find some compassion among the poor. I’m 24 and I make under $20,000 annually, as it now stands, but I have no problem watching my supervisors at work receive higher tax cuts (higher in dollar amount, not in percentage) than me, because I understand that I paid less into the system to begin with. My point is that I disagree with the assumption that the money is the government’s to begin with, or that tax cuts “give” money to those who already have it an don’t need it. The truth is that the money was theirs to begin with, and on principle, should be returned to them.

Besides, when the wealthy do have more of their earned money, isn’t it invested or saved in banks, which lend to those who need it; or spent on materials and services which, in effect, flow money through the economy and into others’ hands who need it? The point is that this “wealth hoarding” idea seems to be fiction. If money is in private hands, whether it be the individual, a bank, or some other financial institution – it’s available to be spent or lent to those who will spend it, and therefore, available to do good where it is needed.

My reading of Andrew Jackson is that he plainly opposed Federal money intervention en toto precisely because any regulation would inevitably be hijacked by the monied interests. Didn’t he advocate state competition in the money market? He certainly didn’t advocate a Federal income tax. I grow tired of one of our nation’s forefathers being invoked in anachronistic fashion to promote doctrines that would make the man roll in his grave. The most efficient way of distributing money is self-evident to the person who earns it and, with a multitude of cases in the fullness of time, spontaneous order is achieved.

Instead of patronizing or subsidizing wise world leaders should just give back what people already owned.
————
Capital Dynamics:

I have been playing with some analytical insights to figure out the underlying functioning of the global financial meltdown as follow:

Lost and Found Conceptions:
Many objects lost can be found so that institutions may have a department to handle lost objects returning them to their owners.

Money can be lost on two ways in the financial market.

1. Lost by transfer.
A person loses his wallet but somebody finding it can spend the money keeping it cycling in the economy.

2. Lost by destruction.
A person loses his wallet in a fire and the money is burned being out of circulation definitively.

Last year only in the US the stock exchange lost by destruction 7 trillion dollars that is considered out of circulation forever. This economic crisis that started in the US and spread globally may have contributed to vanish around 15 trillion dollars worldwide. UN predicted a consequence of 50 million jobs to shed due to this economic downturn.

The approved stimulus package of less than a trillion dollars may provide some sort of relief to a crisis that destroyed about 7 trillions in the US. However the amount destroyed in one year in the stock exchange takes around 5 to 10 years to be created.

Mr. Obama, when a person loses his wallet in a fire it becomes a challenge to claim any loss because there is no way to provide any information about the content lost. The Stock exchange system tracks the stocks allowing losses be reimbursed to owners. It is a good deed retuning money that was meant to pay retirement or college fees, or even charity institutions endowments.

Why to do it?
There are 50 million jobs losses to prevent ensuring a better leadership to the world. A simple smart management in the economic system could avoid such catastrophe.

Transforming stocks to fixed rate investment could give all governments a strong tool to restore destroyed capital back to previous values curbing destructive power from fears. Investors would accept a deal to transform their stock to the purchasing value plus interest rates (2% a year?) with a minimum moratorium (2 year?} for the companies to allow programmed withdrawing.

There is a very fair reasoning since the capital destroyed existed previously originating from many sound sources. Good part of healthy money can be restored to its integrity curbing a worldwide damaging financial crisis worsened by combined effect of fears.

I estimate that there was a general loss around 30% of stocks worldwide; it means that money in such stock applications should be around 50 trillion dollars which allowed about 15 trillions to be destroyed and harm the global economic system.

I believe that 50% to 70% of money lost in the stock can be recovered back as a fixed rate investment meaning 3 to 5 trillion dollars returning to the economy in the US to the purchasing values plus interest rates of the period.

Converting stocks to fixed rate investment can be a permanent tool to prevent future economic collapses and to reduce the size and importance of stock exchange in the economy. Companies would sell stock and ensure that at least fixed rates their stocks should guarantee investors in case of downturns. When a company degrades its performance, its stocks start becoming fix rate investments preventing a further degradation by fears in the free offer-demand rule.

If investors know that their money can be recovered at least at the levels of fixed rate investments, they would not become so eager to retreat from the stock market from falling stocks. In general the stock exchange should compensate at least to the level of fixed rates. This puts a tricky break on falling trends avoiding worsening situations.

What should it be called?
Stock Rescue System:
Governments will make Laws to ensuring that companies selling stocks would offer options to transform stocks to fix rates investments. This amendment would protect against spreading fears and any sort of retreat that spoil parties or overall functioning of the economy. Fixed rates could become a capital investment for withdrawing on investor interest.
————–

Until we quit throwing away ten dollars on the dime for every half-baked weapon Raytheon invents, people can shut up about the government “wasting money” on infrastructure spending for the rest of us. Yeah, those are all great points about how smart things can’t be done quickly and on a wide scale, but we’re talking about $800 billion dollars here. Against the price of our ongoing defense boondoggle, which isn’t just a boon to the rich but to a very specific few and connected rich, there is no comparison.

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